As a first-time Roseville real estate investor, you may be feeling a bit overwhelmed. Today, we’re sharing some of the things you need to know.
Assess Your Financial Security
The first and most important thing you need to have is money. If you don’t have money to invest, you should press pause right now and wait until you have saved some money. Then, come back and watch this video. Money is the number one thing you need to invest. You don’t want to spend your life savings on this investment, so make sure you know exactly what you are doing, and know what kind of money will be involved. You need to have a down payment, and you need to talk to a mortgage broker to find out how you can get a loan. You’ll need 20 – 30 percent down depending on what area of California you are in.
Understand the Rental Market
Next, you must understand the local rental market. If you want to purchase a property, you need to understand what it will rent for and how to determine that. Look at other rental properties and compare those to your own to determine what your property will rent for. Establish a range of what your monthly expenses will be and what kind of cash flow you can expect.
Evaluate Your Return on Investment
You need to understand your return on investment as well. A big misconception in California is that negative cash flow on a property is not an awful thing. If I told you that you could own a property in Silicon Valley for $500 or $1,000 a month, would you take it? The answer is absolutely. Your tenant is paying for your expenses. Maybe not all of those expenses are covered, but the tenant is paying for most of the property, and you get to keep the investment for just a small amount per month.
If you keep that property, you’ll have appreciation, and your equity will grow in the home while your tenant pays those expenses. So, it makes sense that a small negative on your return isn’t a horrible thing.
Think about the tax advantages as well. You get to write off your property taxes and your interest mortgage. You also get to write off your insurance. If you have a property management company, you get to write off that fee. All of these things, including capital improvements and maintenance on the property, will become helpful at tax time. At the end of the day, that $500 or $1,000 negative every month will quickly shrink. Talk to a CPA or a tax advisor so they can help you understand these numbers better.
Identify the Property Location
Know the area in which you are buying. Your first investment should be in a neighborhood close to where you are so you can understand the schools, the roads, and the community. It will help a lot if you are familiar with the areas you are investing in when you first start out. Once you become an experienced investor, you can start moving into areas outside of where you are and then even out of state if that’s what you want.
Maintain Financial Reserves
Make sure you have a financial buffer. You don’t want to spend your life savings on a down payment and then have nothing left over. You’ll have to deal with potential capital improvements and unexpected repairs. Without a reserve of cash, you may run into an expense that you can’t pay for. That will be a problem with a tenant in place because in California, you have to make these repairs quickly to remain in compliance with habitability rules. So, make sure you have that buffer of money for improvements.
Understand the Rental Laws
It’s important to understand the rental laws, which leads us to the value of a property manager. Rental laws in California are some of the strongest in the entire United States. If you want to be a tenant, this is the place to be. As a landlord, you have all these regulations that require your attention and compliance. If you don’t know the laws, you can find yourself in a ton of trouble financially. Potentially, you could run into criminal issues as well, depending on the laws you break.
This is where a property management company would come in handy. Property managers know these laws and protect your valued asset. This property is something that’s going to make you money for years and years to come, so it’s important to protect it.
If you have any additional questions about what you need to know when you’re ready to invest, please contact us at Sunburst Properties.